I.T.As. Nos. 2304/KB to 2307/KB of 1996-97, decided on 27th April, 2002. VS I.T.As. Nos. 2304/KB to 2307/KB of 1996-97, decided on 27th April, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2422 (2002)

(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.156‑‑‑C.B.R. Circular No.23 of 1988, dated 8‑11‑1988‑‑ Rectification of mistakes‑‑‑Rectification of order in view of C.B.R. Circular No.23 of 1988. dated 8-11‑1988 was not only unjustified but also bad in law as the clarification of the said Circular had been declared ultra vires of the law.

1992 PTD 570 rel.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.156(2), Third Sehed., R.3A‑‑‑C.B.R. Circular No.23 of 1988, dated 8‑11‑1988, para. 2 (ii) & (iii) ‑‑‑C.B.R. Circular No. 21 of 1988, para. 2‑‑‑Rectification of mistakes‑‑‑Assessment year 1991‑92‑‑ Unabsorbed depreciation‑‑‑Carry forward of losses‑=‑Adjustment through rectification in view of R.3A of the Third Sched. of the Income Tax Ordinance, 1979 with retrospective effect ‑‑‑Validity‑‑ Assessing Officer in view of amendment in R.3A of the Third Sched. to the Income Tax Ordinance, 1979 brought in 1992, rectified the order for the assessment year. 1991‑92‑‑‑Amendment brought in 1992 could not be given retrospective, effect to implement same in the assessment, year 1991‑92‑‑‑Law should be read as it stood and any Circular and amendment in law, if proposed, the Revenue Officers on their own accord, could not draw any analogy to give the law retrospective or prospective effect‑‑‑Assessing Officer while passing order under S.156 of the Income Tax Ordinance, 1979 on his own accord gave retrospective effect to the amendment, although the amendment itself was silent in that respect‑‑‑In assessment year 1991‑92, the assessee had also filed appeal before the First Appellate Forum, thus assessment order merged with the order of the Appellate Authority and left no corner for rectification‑‑ First Appellate Authority rightly deleted the adjustments made in the order through rectification, as the Assessing Officer had not only overridden the statutory limitation concerning the very matter of depreciation which cropped up and got barred admittedly in the assessment year 1986‑87, but resort to S.156 of the Income Tax Ordinance, 1979 was absolutely uncalled for in a controversial issue involving no mistake apparent on record‑‑‑Assessment orders besides being time‑barred were misuse of S.156 of the Income Tax Ordinance, 1979,, as there was no mistake apparent from record‑‑‑Order of First Appellate Authority did not warrant interference.

1992 PTD 570; PTCL 1994 CL 222 and 1999 PTD (Trib.) 1588 rel.

Imtiaz Ahmed Barakzai, D.R. for Appellant.

Arshad Siraj for Respondent.

Date of hearing: 18th April, 2002.

ORDER

S. HASAN IMAM (JUDICIAL MEMBER).‑‑‑The Department in all the appeals captioned above, has been following common objections to the consolidated order of learned CIT(A) dated 31‑1‑1997:‑‑‑

(i) That the learned CIT(A) was not justified to hold that there is no legal justification for .any rectification and further directing the Assessing Officer for deleting the adjustment made in. the order through rectification:

(ii) That the learned CIT(A) was not justified, to observe that rectification order has been passed after expiry of limitation period.

(iii) That the learned CIT(A) was not justified to hold that amendment to law in rule 3A of the Third Schedule to the Income Tax Ordinance, 1979 was brought in 1992, thus cannot be given retrospective effect.

2. The facts arising from the two orders below are that the Assessing Officer passed a detailed order under section, 156, of the Income Tax Ordinance, 1979, in respect of assessment year 1988‑89 and on the basis thereof, the rectified the assessment orders pertaining to assessment years 1989‑90 to 1991‑92. The Assessing Officer while processing case for the assessment year 1993‑94, noted that the depreciation claimed by the assessee and allowed by the Department is in excess and in view of Circular No.23 of the 1988, dated 8‑11‑1988. unabsorbed depreciation allowance could not be carried forward to be adjusted against the profit of the past tax holiday period and on the same analogy, the accumulated business loss would also not be carried forward and adjusted against the profit of the post tax holiday period. The Assessing Officer in view of the above, rectified the unabsorbed depreciation, working of which appears in the assessment order pertaining to assessment year 1988‑89 and reproduced hereunder:‑‑‑

3. The Assessing Officer further observed that W.D.V. after including additions worked out for Rs.75,858,573 whereat as per original order the W.D.V. for the year under consideration, has been taken for Rs.87,557,741, hence the mistake is apparent from the record which needs to be rectified. He, therefore, confronted the assessee vide letters dated 28‑2‑1994, 5‑3‑1994 and 9‑5‑1994.

4. In response to notices referred above to, the A.R. of the assessee objected on the grounds that very allegation that the excessive relief has been allowed is misconceived, the depreciation has been rightly allowed in accordance with law, subsequent rules and instructions would not effect that duly completed assessment and that there is not mistake apparent from record, besides factual and legal aspects of the case also do not support the proposed rectification and, therefore, the fresh proceedings under section 156(2) is a matter of interpretation and change of opinion

5. The Assessing Officer disagreed with the reply and observed that the profits and gains derived by the assessee are exempt under section 119 of the Income Tax Ordinance, 1979 but in case of loss, the assessee has no right to transfer losses to the period of post tax holiday and so far as question of deprecation is concerned, it is accounting principle that until and unless the depreciation is charged' to the P&L account, true profits and exact loss cannot be deducted, besides depreciation allowance is a statutory allowance specified in the Third Schedule which makes it obligatory that irrespective of the fact that the assessee has claimed it or not, it should be allowed and cannot be deferred. The Assessing Officer further observed that the department is not concerned with the assessee's profits or losses out of industrial undertaking set up, hence the assessee is not entitled to take the benefits in the post tax holiday period after arranging the accounts in such a manner that unabsorbed depreciation could be absorbed against the profit of taxable period and not against the profit during the tax holiday period by showing the losses as it will amount to allow the assessee to enjoy the tax holiday period for more than specified period. The Assessing Officer, in the circumstances, observed that the mistake occurred is apparent, hence rectified the order hereunder:‑‑‑

Total loss assessed(207,60,793)

Add: dep: wrongly allowed118,98,704

(88,62,089)

Less: dep: as per working and

As per 3rd schedule.(104,34,683)

(192,96,772)

Brought forward loss(396,90,258)

Loss to be carried forward(589,87,030)

5. The learned CIT(A) allowed the appeal relying upon a case‑law reported as 1992 PTD 570 SC (Pak) wherein the Hon'ble Supreme Court specifically disproved action of rectification when an officer enters in the controversy investigates into a matter, takes into consideration the facts and interprets the law and forms an opinion different from previous order The learned CIT(A) also observed that the Assessing Officer has in tact rectified the figures of the years 1985‑86, 1986‑87 and 1987‑88 which were beyond the limitation period and have attained finality and thus it was closed and past transaction as held by the Supreme Court PTCL 1994 CL 222. It is also observed by the learned CIT(A) that the assessee had tiled appeal before the First Appellate Forum and it was duly decided, as such Income‑tax Officer's order merged with the order of the Appellate Authority and in view of the decision of Superior Courts the order cannot be rectified. The learned CIT(A) in view of above allowed the appeal, observing that there is no justification for any rectification and directed the learned Assessing Officer to delete the addition made through rectification orders.

6. W e have heard the learned representatives of the two parties. The learned D.R. while arguing that there is no legal justification in annulling the rectification order and deleting the adjustment made through rectification orders in view of C.B.R. Circular No.23 of 1988 dated 8‑11‑1988 and that the rectification orders were passed within the limitation period. On the other side, the learned counsel for the assessee argued that reopening of duly completed assessments by mere change of opinion regarding interpretation of admissibility of depreciation during tax holiday periods overriding the statutory limitation period is unjustified. He added that matter became time‑barred in assessment year 1986‑87 cannot be revived in subsequent years invoking section 156 of the Income Tax Ordinance, 1979.

7. It reveals that rectification has been carried out for the only reason that depreciation cannot be carried forward from pre tax holiday period to post tax holiday period, whereas the case‑law cited as 1999 PTD (Trib.) 1588. is complete answer of the present legal controversy wherein it is observed that clarification issued by the Central Board of Revenue vide para. 2 of Circular No.21 of 1988 and vide sub‑paras. (11) and (iii) of para, 2 of Circular No.23 of 1988 regarding inability to carry forward losses on account of unabsorbed depreciation to be adjusted against the profits of the post tax holiday period have no basis in law and there appears no provision in law imposing such restrictions. The Full Bench of the Tribunal in the above judgment also observed that Circular No.23 of 1988 is ultra vires of the law and that in case loss is assessed from industrial undertaking, it should be set off against income from any other source in that assessment year, and so much of the loss as has not been so set off, shall be carried forward and set of in accordance with the provisions of section 35 of the Income Tax Ordinance, 1979 and that unabsorbed depreciation losses are liable to be adjusted against profits of the post‑tax‑holiday period. The relevant ratio of judgment is reproduced hereunder:

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.35‑‑‑C.B.R. Circular No.21 C.No 13(19)IT‑I/80, dated 24‑10‑1988, para.2‑‑‑C.B.R. Circular No.23 C. No. 1(40)IT JI/79, dated 8‑11‑1988, para. 2(ii) & (iii)‑‑‑Carry forward of business loss‑‑‑Tax holiday period‑‑‑Clarification‑‑‑Clarifications issued by Central Board of Revenue vide para.2 of Circular No.21 of 1988 and vide sub‑paras. (ii) & (iii) of para. 2 of Circular No.23 of 1988 regarding inability to carry forward losses on account. of unabsorbed depreciation or Ether accumulated business losses to be adjusted against profits of the post‑tax‑holiday period have no basis in law and there was no provision in law imposing such restrictions or obligations‑‑Clarifications, thus, were ultra vires of the law.

‑‑‑‑Ss.35, 14 &. Second Sched., Part I‑‑‑Industrial undertaking‑‑ Carry forward of business loss‑‑Exemption from tax‑‑Unabsorbed depreciation‑‑‑Refusal by Assessing Officer to bring forward the unabsorbed depreciation of the period specified for exemption from tax for setting off same against income of immediately succeeding assessment year in which profits and gains derived from industrial undertaking were not exempt‑‑‑validity‑‑‑Tribunal directed that in case loss on account of unabsorbed depreciation had been assessed in immediately preceding year, it should be brought forward and set off against profits and gains derived from the same industrial undertaking, assessable for the present assessment year, in accordance with the provisions of S.35 of the Income Tax Ordinance 1979.

8. In view of above cited judgment, we find that rectification of the order in view of Circular No.23 of 1988, dated 8‑11‑1988 is not only unjustified but also bad in law as the clarification vide Circular No.23 has been declared ultra vires of the law.

9. Apart from the above fact, the learned D.R. has not been able to rebut the finding of the learned CIT(A) that the Assessing Officer has in fact rectified the figures of the years 1985‑86, 1986‑87 and 1987‑88 after expiry of limitation period and has ignored that the orders have attained finality and thus it is a closed and past transaction as held by the Supreme Court in 1993 SCMR 1905.

10. The Assessing Officer in view of the amendment in law in rule 3A of the Third Schedule to the Income Tax Ordinance, 1979 brought in 1992 after the decision of the Tribunal cited as 1999 PTD (Trib.) 1528 rectified the order for the assessment year 1991‑92. Unfortunately the amendment brought in 1992 cannot be given retrospective effect to implement it in the assessment year 1991‑92. Law should be read as it stood, any Circular and amendment in law, if proposed, the Revenue Officers on their own accord, could not be drawn any analogy to give it retrospective or prospective effect. The Assessing Officer while passing order under section 156 on his own accord gave retrospective effect to above referred amendment, although the amendment itself is silent in this context. It is also important to point out that in the assessment year 1991‑92. the assessee had filed appeal before the First Appellate Forum, thus assessment order merged with the order of the Appellate Authority and thus leaves no corner for rectification.

11. The learned CIT(A), in the circumstances supra, has rightly deleted the adjustments made in the order through rectification, as the Assessing Officer not only overridden the statutory limitation concerning the very matter of depreciation which cropped up and got barred admittedly in the assessment year 1986‑87, besides resort to section 156 is absolutely uncalled for in a controversial issue involving no mistake apparent from record.

12. We, in the circumstances supra, find that the assessment orders besides being time‑barred are misuse of section 156 as there is no mistake apparent from record, thus order of the learned CIT(A) does not warrant interference.

13. The appeal accordingly dismissed.

C.M.A./M.A.K./363/Tax (Trib.)

Appeal dismissed.